Markets on the March

Commentary: Commodities rule the month, but oil and coal make sense

By

JimLowell

Editor of The ETF Trader

WATERTOWN, Mass. (MarketWatch) -- First, let me bury my lead: March is typically a good time for making money in the markets.

Not a lot of money and not everywhere you look, but a gain is a gain -- especially against the grain of the first two months of this new year. By virtue of their attendant volatility, the last two months have felt like two years in terms of investment angst.

That doesn't mean a willy-nilly approach, such as buying a broad market index fund or exchange-traded fund, is the best answer for the ides.

Doing so only nets you all the risks inherent in any possible return. And, make no mistake, today's economic and market environments are rife with risks as well as the potential for even near-term returns.

Lionhearted trades

Against that survival of the fittest backdrop, lionhearted traders and long-term investors alike can claw their way to gains.

Think of it this way: Spring's coming in like a lion, stealthily slinking through the thawing saw grass while stalking better days to come.

The markets, as our seasonality charts tell us, have followed a similar pattern: raising slight gains on its hackled broad market back leading to a sector-focused commodity-related March mane. Take a look:

No doubt about it. In March, commodities rule the pride land. Stalking oil and coal, as well as keeping some loose currency on hand for future investment safaris, makes sense. Given the foreground of a global economy in heated growth, and a widening global consumer class that's capable of paying even inflated prices for consumable proof of their purchasing prowess, commodities and beyond-the-greenback-currencies look like a no-brainer. They aren't. But through diversification individual investors can make headway like the pros.

Let's start with holding cash -- but not in the traditional manner. We've heard all the hand wringing about a weakening U.S. dollar, but there's an ETF, the Powershares Deutsche Bank G10 Currency Harvest
DBV, -0.59%
that enables individual investors to hedge their own currency and cash in on the mainline currency trend: currencies associated with relatively high interest rates, on average, tend to rise in value relative to currencies associated with relatively low interest rates. The DBV's basket: Australian Dollars, British Pounds, Canadian Dollar, Euros, Japanese Yen, New Zealand dollars, Norwegian Krone, Swedish Krona, Swiss francs, and U.S. Dollars.

For a twist on petro dollars, I like the United States Oil
USO, -0.14%
ETF which lets you invest in the price direction of crude oil. Granted, that direction has been setting new high water marks lately, and granted the volatility here can be extreme. But as for the sustainability of the upper-end of the trading range, I don't side with T. Boone Pickens' recent call to short energy (he's expecting a drop in the price per barrel from $100 to $85). Instead, I side with former Federal Reserve Chairman Alan Greenspan who just this week said he can't see how demand for oil will abate anytime soon. The thirst of China and India alone suggest that no quench is in sight.

And while currency woes and gushing oil get all the headlines, coal (the anti-greenback), is the real beneficiary of global growth. The fact is that coal fuels even our own domestic growth to a greater extent than anyone seems to know, let alone acknowledge. Overseas, especially in Asia, coal is the gold standard for consumable fuels.

The top five country representations are the United States (39.6%), Hong Kong (24%), Indonesia (11%), Australia (9.2%), and Canada (5.8%). KOL began trading on Jan. 11 and is Van Eck's 10th ETF. It has an average daily trading volume of approximately 120,000 shares and it carries an expense ratio of 0.65%. The index was up over 103% in 2007. From it's inception through the end of February, the ETF is up 3%.

A final way to play the old school currency and commodity pipelines is via the new school of green energy. The PowerShares WilderHill Progressive Energy Portfolio
PUW, -0.99%
benchmarks to the WilderHill Progressive Energy Index, an index made up of U.S. companies that are involved in green energy technologies.

The three largest sectors are industrials, energy, and utilities. The top 10 holdings include global energy company USEC, auto parts provider Tenneco, uranium and gold producer Cameco, oil & gas companies Chesapeake Energy and Sasol, methanol producer Methanex, electrical equipment companies Energizer and GrafTech International, natural gas distributor BG Group, and pollution and treatment control company Fuel-Tech. Here, diversification ought to be a virtue in a volatile field where the rhetorical winds can generate either more hot air or profits you can take to the bank. In fact, in a month that is typically a good time for making money in the markets, this cautious sentiment applies to all the above.

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